After some thorough research, I believe that TransCanada Pipeline’s (TRP) earnings, cash flow and growth are not likely to be impacted by a recession. So the recent downturn in stock price offers us an excellent buying opportunity.
TransCanada’s business is essentially recession-proof for a few key reasons:
- Its earnings and cash flow are earned through cost-of-service arrangements, contracts and other required services.
- The company is led by a very strong management team that maintains a financially conservative discipline.
- TransCanada is in its best financial position in recent years, with a superior debt rating of “A”, the strongest balance sheet in over a decade (55% debt at September 30/2007) and over $2.5 billion of annual cash flow (>$1.5 billion post dividends and Capital Spending)
TransCanada offers an outstanding valuation at this time. The stock is currently within 6% of its 52-week low and boasts huge dividend yield for a pipeline: 3.70%.
The dividend payout ratio is sitting at a respectable 63% and the company has grown its dividend at a steady rate of 7.3%. The ROI is right on the industry average at 5.07%, and the Return on Equity (ROE) is well above the average for the industry at 13.00%.
The chart shows support at $37.00, which also coincides with the 50-Day Moving Average support. These two factors make an entry at around $37.00 a very attractive proposition.
Still Not Convinced
How about adding the recently announced quarterly dividend of $0.36 per common share, a six per cent increase over the $0.34 per share paid in each of the previous four quarters? The dividend is payable on April 30, 2008 to shareholders of record at the close of business on March 31, 2008.